Strategic compensation is an attempt by a business to better its compensation level to reward work and input, by establishing certain rewards for a given level of performance. Strategic compensation simply means creating an incentive structure that directly rewards workers for their skills and performance. It is a compensation scheme implemented to improve the motivation of workers to perform better. Strategic compensation helps in determining employee behavior, interpersonal relationship emotion, cognition and personality.
Objectives of Strategic Compensation
Most organizations face a growing need to engage workers and attract the best of contingents, preserve a long term relationship with employees and get the best out of them. Strategic compensation enables organizations retain and minimize employee turnover by making them feel valued. An organization that preserves its long-term relationship with employees recognizes that every dollar earned passes through the employees. Hence, it pays them in relation to the adopted cultural and regulatory environment practices. Strategic compensation enables organizations determine pay, benefit and opportunity in relation to the cultural and regulatory environment of an organization. There are creation of employee loyalty and reduced rate of employee turnover.
Strategic Compensation Alignment
The necessity for organizations to control cost of man power, while at the same time increasing productivity, teamwork, quality and customer service, has been more urgent (Jeffs, 2008). The current competitive environment requires new strategies towards employee compensation, by addressing psychological factors, for instance; social status, self-esteem and social integration. Differences in compensation within the organization are widespread; hence some believe in the use of incentive compensation while others apply incentive to a narrow group of employees affecting the bottom-line. The situation calls for the need to cross train employees to increase their incentive with the number of jobs handled.
Competiveness in Strategic Compensation
Paying above what other employers offer their employees increases productivity with the firm; it reduces the chance of imitation by competitors and improves the employee turnover and loyalty within the organization. Paying well increase employee self-esteem leading to improved motivation in the organization. Providing health insurance increases the self-status of employees, improving the employees’ motivation and loyalty to the organization.
Management in Strategic Compensation
Qualified and well trained employees should access an open and transparent system of payment; the designing and management of the system should be done by management and monitored by all the organization staff and employees. Employees should provide social support to management and help them reduce social conflict in terms of formation of groups and partnership within the organization. Thus, there is a smooth and concurrent compensation scheme for all employees in relation to their effort and productivity to the organization.
Strategic compensation focuses on the objective of the compensation plan, the alignment of the objectives and goals of the plan, and the competitive environment surrounding the compensation system in place. The strategic compensation decisions are determined by the legal, socio-cultural, and political systems that influence the spirit of teamwork, attitudes and productivity of employees.
Jeffs, C. (2008). Strategic management. Los Angeles: SAGE.
Martocchio, J. J. (2001). Strategic compensation: A human resource management approach. Upper Saddle River, NJ: Prentice Hall.